In Kim v. Reins International California, Inc. 18 Cal.App.5^th 1052 (2017), the California Court of Appeal for the Second Appellate District held an employee-plaintiff that settled and dismissed his individual claims was no longer an “aggrieved employee” for purposes of standing to bring a claim for civil penalties under the Private Attorneys General Act (“PAGA”).

Under PAGA, an “aggrieved employee” may bring a representative action on behalf of him or herself and other “aggrieved employees” for civil penalties for various violations of the California Labor Code. (Cal. Labor Code §§ 2698, et seq.)  PAGA cases have become increasingly favored by plaintiffs’ attorneys for a number of reasons, including the fact that PAGA-claims cannot be compelled into arbitration.

On January 7, 2020, three years after the Court of Appeal’s ruling, the California Supreme Court heard oral argument in the case to determine whether an employee-plaintiff bringing an action under PAGA loses standing to pursue PAGA claims by dismissing his or her individual claims against the employer.

Counsel for the employee argued that the appellate ruling caused the plaintiff-employee and the State of California (which deputized him to prosecute PAGA claims) to be at odds.  He argued the plaintiff-employee would be faced with potentially choosing against his own settlement to protect the representative action.  In the underlying case, Plaintiff Kim was served with an offer to compromise to resolve his individual claims pursuant to Code of Civil Procedure § 998.  If Kim had not accepted the offer to compromise and failed to obtain a larger judgment on his individual claims pursuant to Section 998, Kim may not have been permitted to recover court costs as the prevailing party and may have had to pay Reins International’s costs.

The Justices seemed concerned that the argument to overturn the Court of Appeal meant that an employee who brought a PAGA claim and later wanted to abandon the claim would be unable to do so without judicial intervention.

However, the Justices seemed even more skeptical of Reins International’s position.  Justice Liu stated that it seemed employers could “pick off” employees until no PAGA claims remained.  In response, counsel for Reins International argued that enforcement actions by the State could still proceed, to which the Chief Justice retorted, “we all know that doesn’t work.”

The California Supreme Court could decide to restructure PAGA claims to be more like class actions by allowing for the substitution of a new plaintiff when the named employee-plaintiff is no longer an “aggrieved employee,” an option offered by the employee’s counsel.

We will continue to monitor the Kim v. Reins International California, Inc. case for the issuance of the California Supreme Court’s opinion.